UBS, ECB Deal Reaction, Bank of Canada, FDIC: Compliance

Dec. 14 (Bloomberg) -- UBS AG, Switzerland’s biggest bank,
may be fined more than $1 billion by U.S. and U.K. regulators
for trying to rig global interest rates, more than double the
amount levied against Barclays Plc, according to a person
familiar with the probe.

The fines from the U.S. Commodity Futures Trading
Commission, the U.K. Financial Services Authority and the U.S.
Department of Justice may be announced as early as next week,
said the person, who asked not to be identified because the
information isn’t public. The final figures are still being
negotiated and could change, three people familiar with the
probes said.

Global authorities are investigating claims that more than
a dozen banks altered submissions used to set benchmarks such as
the London interbank offered rate to profit from bets on
interest-rate derivatives or make the lenders’ finances appear
healthier. Barclays, the U.K.’s second-biggest bank, agreed to
pay 290 million pounds ($467.9 million) in June to resolve the
U.S. and U.K. Libor probes.

UBS spokeswoman Karina Byrne in New York declined to
comment on the potential penalties. Officials from the CFTC,
FSA, Swiss regulator Finma and the DOJ also declined to comment.

The fine will probably be the largest levied against any
bank by U.S. and U.K. authorities in the Libor probes, the
person said. The CFTC’s portion of the fine against UBS may
exceed the entire fine against Barclays. The fine, which was
expected to be announced this week, has been delayed as the DOJ
works out a deferred prosecution agreement, one of the people
said.

Finma also may penalize the Zurich-based bank and force it
to disgorge profits, one of the people said.

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Special Section: ECB Oversight

EU Said to Set March 2014 Target Start Date for ECB Supervisor

The European Union is considering a March 2014 target start
date for a new bank supervisor at the European Central Bank,
according to a draft document prepared for finance ministers
meeting in Brussels.

The latest proposal also gives the ECB unlimited discretion
on whether to delay its oversight duties if it wants more time
to prepare, according to documents prepared by the Cypriot
presidency and seen by Bloomberg News. The proposals include an
option that would allow the new supervisor to be fully
operational 12 months after the EU publishes regulations to set
it up.

Other changes would allow participating nations to seek
mediation if they disagree with an ECB supervisory decision and
simplify procedures for objections from non-euro nations that
volunteer to join the common oversight regime.

Draghi Faces Recruitment Drive as ECB Takes on Supervision

European Central Bank President Mario Draghi may need to
hire hundreds of new staff after governments handed him sweeping
powers to supervise the banking industry.

While the ECB will rely on local regulators to oversee the
majority of the euro area’s 6,000 banks with total assets of
about 33 trillion euros ($43 trillion), it will take on direct
supervision of as many as 200 larger lenders and have ultimate
responsibility for all banks. Economists said that will require
it to significantly expand its fields of expertise by adding to
its current full-time staff of around 1,600.

Draghi’s ECB, primarily responsible for ensuring price
stability, will take on the oversight duties as part of a so-called European banking union that aims to sever the link
between government finances and domestic banking sectors. While
Draghi himself won’t chair the new supervisory board, the
central bank’s steady accrual of power during the sovereign debt
crisis has met with criticism in Germany, where the Bundesbank
has warned of a conflict of interest and an erosion of
inflation-fighting credibility.

To avoid “potential conflicts of interest,” European
leaders agreed that “the ECB’s monetary tasks would be strictly
separated from supervisory tasks.”

U.K. Chancellor of the Exchequer George Osborne said
yesterday that the deal on bank oversight is a “a significant
moment for the EU.” Decisions on Greece and bank supervision
have allayed doubts, Luxembourg Prime Minister Jean-Claude
Juncker said. French President Francois Hollande welcomed the
deal “on oversight for all banks.”

The ECB has until March 1, 2014, to be ready to fully
assume its duties, with the legal framework that will underpin
the new role scheduled for completion by the end of February
next year.

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UniCredit Says EU Bank Accord a ‘Very Important Step’

UniCredit SpA General Manager Roberto Nicastro talked about
the European Union accord to put the European Central Bank in
charge of all euro-area lenders.

He spoke with Bloomberg’s Flavia Rotondi in Rome.

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ECB to Oversee Most French Banks Under Deal, Bruegel Study Says

The European Central Bank will monitor most French banks
under thresholds agreed upon early yesterday, according to a
study from the Brussels-based Bruegel Research Group.

European Union finance ministers agreed to give the ECB
direct oversight of banks whose balance sheets have more than 30
billion euros ($39 billion) in total assets or represent more
than 20 percent of their home country’s economy.

Bruegel researchers Guntram Wolff and Carlos De Souza said
91 percent of euro-area banking assets and at least 180 firms
would be captured under the terms of the agreement. For most
countries in the 17-nation currency bloc, more than 80 percent
of banking assets would be covered, Bruegel said.

Yesterday’s deal says the ECB generally will take on the
top three banks in each participating nation. EU Financial
Services Commissioner Michel Barnier said he expected the ECB
would have day-to-day oversight of about 200 banks once it
starts operations in 2014.

Separately, Italy’s borrowing costs dropped at a bond sale,
clearing a second market hurdle this week as the ECB’s pledge to
buy bonds offsets concern that pending elections may erode the
country’s commitment to economic reforms.

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ECB Will Test Banks With EBA Before Taking Over, Nowotny Says

The European Central Bank and the European Banking
Authority will hold a joint financial stress test next year
before the central bank takes over supervision, Governing
Council member Ewald Nowotny told reporters in Vienna today.

Bolstering confidence in the region’s financial industry is
a key component of government efforts to defeat the debt crisis
that has roiled markets since late 2009. Next year’s joint round
of stress tests will gauge banks’ progress toward meeting new
capital rules set by the Basel Committee on Banking Supervision
before the ECB is set to take over supervision in March 2014.

The decision to hold a joint assessment was made to avoid
subjecting lenders to separate tests, Nowotny said after a
presentation of the Austrian central bank’s semi-annual
financial-stability report. Details of the stress tests are
still being determined, he said.

Compliance Policy

BlackRock Favors Withdrawal Fees Over FSOC Money-Fund Plans

BlackRock Inc., the world’s largest money manager,
criticized draft recommendations for new rules governing money-market mutual funds offered last month by a senior panel of
regulators, and reiterated its call for withdrawal restrictions
for funds under stress.

Floating the share price of money funds to reflect market
prices wouldn’t prevent investor runs, and requiring the funds
to hold capital buffers would effectively eliminate the product
by driving clients away, the New York-based firm said yesterday
in a letter to the Financial Stability Oversight Council in
Washington. BlackRock said it favored a plan to impose a 1
percent fee on withdrawals when a fund’s weekly liquidity
dropped below half the required level.

Regulators, led by outgoing SEC Chairman Mary Schapiro,
have been working to overhaul rules governing the $2.6 trillion
money-fund industry since the September 2008 collapse of the
$62.5 billion Reserve Primary Fund. Its failure, triggered by
holdings of debt issued by Lehman Brothers Holdings Inc., set
off a run by money-fund investors that helped freeze global
credit markets.

Schapiro had planned a proposal where money funds would be
forced to choose between a floating share value or a combination
of capital buffers and withdrawal restrictions. She shelved the
proposal when three fellow commissioners didn’t endorse it.

The Financial Stability Oversight Council, known as FSOC,
on Nov. 13 began a process by which it will pressure SEC
commissioners to reconsider the elements of Schapiro’s plan and
a third option that also included a capital buffer. FSOC said it
would be open to other proposals offered during a 60-day comment
period.

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Banker Bonuses Seen Capped at Twice Salary in EU Compromise

European Union officials reached a tentative deal with
lawmakers to ban banker bonuses that are more than double annual
salaries.

Negotiators from the European Parliament and Cyprus, which
holds the rotating presidency of the EU, brokered the draft
agreement during a meeting yesterday, said Sharon Bowles,
chairwoman of the assembly’s economic and monetary affairs
committee. The deal is contingent on compromises being confirmed
on some other parts of an EU law on bank capital.

The accord would cap a banker’s bonus at the same level as
fixed salary, while giving room for larger awards with
shareholder approval, Bowles said in an e-mail after the meeting
in Strasbourg, France. A maximum limit would be set forbidding
awards of more than twice fixed pay.

Philippe Lamberts, the lawmaker leading the talks for the
parliament’s Green group, said in a telephone interview that the
intention is to conclude a deal on the entire bank capital law
next week.

Banks are facing a backlash from EU lawmakers determined to
cut variable pay as part of a quest to reshape lenders as
utilities rather than money-making machines. Public outrage and
shareholder rebellions have led some banks to limit payouts. Any
accord on bonuses would be part of a larger agreement on issues
including voting procedures for introducing a so-called leverage
ratio on lenders, Bowles said.

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CFTC Needs Delay in Overseas Rules, Agency Commissioners Say

The main U.S. derivatives regulator came under pressure to
limit the cross-border impact of new swaps rules and delay them
for six months from overseas regulators as well as Democratic
and Republican members of the Commodity Futures Trading
Commission.

The Washington-based agency should provide relief from
compliance with Dodd-Frank Act rules while U.S. and overseas
regulators discuss how to limit oversight gaps, Bart Chilton,
one of three Democrats at the CFTC, and Jill E. Sommers, one of
two Republicans, told a House Agriculture Committee hearing on
the scope of the rules.

The international reach of the CFTC’s swap rules has been
one of the most controversial elements of the agency’s Dodd-Frank rules and has prompted opposition from financial firms
including JPMorgan Chase & Co., Goldman Sachs Group Inc. and
Barclays Plc. The CFTC has also faced criticism from European
and Asian regulators for the reach of a rule requiring trades to
be guaranteed at clearinghouses and traded on exchanges or other
platforms.

The CFTC needs to “clarify and limit the scope of cross-border applicability,” Samara Cohen, a Goldman Sachs managing
director, said in testimony submitted to a House Financial
Services subcommittee hearing Dec. 12.

CFTC Chairman Gary Gensler said yesterday that the cross-border reach of some rules is intended to protect taxpayers from
overseas risks returning to U.S. markets. During a six-month
delay, Chilton said the CFTC should have a narrow, territorial
definition of trades with U.S. clients while cross-border
negotiations continue.

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Compliance Action

S&P Ordered by Japanese Regulator to Improve Ratings System

Standard & Poor’s Japan unit was ordered by the nation’s
financial watchdog to improve its system for verifying and
updating credit ratings in the regulator’s first action against
a ratings company.

“Significant problems were identified with the company’s
business operations from the perspective of the public interest
and investor protection,” the Financial Services Agency said in
a statement in Tokyo today. The regulator issued the order on
Dec. 11 and gave S&P until Jan. 18 to submit its first report.

The rating company’s woes in Japan came to light less than
a month after it was found liable by an Australian judge for
issuing misleading ratings on securities bought by
municipalities ahead of the global financial crisis. S&P failed
to properly confirm information that would affect the ratings of
synthetic collateralized debt obligations, the FSA said.

The regulator will require S&P to implement preventive
measures for the problems its review identified and submit
reports within 15 days of the end of each quarter, according to
the watchdog’s statement.

“We take this matter very seriously and sincerely
apologize to clients and market participants for the issues that
led to the recommendation and order,” S&P said in the
statement.

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FDIC Guarantee Program Set to Expire as Senate Blocks Extension

A Federal Deposit Insurance Program that expanded
safeguards for business bank accounts will likely expire at the
end of this year after the U.S. Senate failed to advance a
proposal for an extension.

A 50-42 vote on a procedural motion fell 10 short of the 60
needed to move forward on a two-year extension of the
Transaction Account Guarantee Program, effectively killing it.
The TAG program, introduced in the wake of the 2008 credit
crisis, guarantees $1.5 trillion in non-interest bearing
accounts above the FDIC’s general limit of $250,000. An initial
extension is set to end Dec. 31.

The TAG program, which provided unlimited backing for
accounts used for payrolls and other business expenses, was
opposed by Republicans as a bailout-era program that shouldn’t
be extended. Community bankers sought the extension as a way to
keep accounts from being moved to bigger banks or money-market
mutual funds.

David Barr, an FDIC spokesman, declined to comment on the
Senate’s vote.

Interviews

Canada Shouldn’t Widen Central Bank’s Oversight Power, Crow Says

The Bank of Canada shouldn’t be given broader powers to
protect financial stability because that may weaken its current
mandate, former Bank of Canada Governor John Crow said.

Crow made the remarks in an interview yesterday, after
publishing a paper for the C.D. Howe Institute of Toronto, a
non-partisan research group.

The central bank already contributes to stability with
advice to government and its main mandate of setting interest
rates to meet a 2 percent inflation target, Crow said. New
powers shared with regulators such as Finance Minister Jim
Flaherty or Julie Dickson of the Office of the Superintendent of
Financial Institutions could make responsibilities unclear,
which “would not be helpful,” he said.

Current Governor Mark Carney takes over the top job at the
Bank of England next year, as that institution is poised to add
broad powers over financial stability and bank regulation. The
U.K. financial system has been damaged by bank bailouts and
allegations that benchmark London interbank offered rates were
manipulated, while Canada’s banking system has been ranked the
world’s soundest by the World Economic Forum for five straight
years.

The success of Canada’s regulations boosts the case for
avoiding major changes at its central bank, Crow said.

U.K. Watchdog to Prevent Risky Lending Sprees, FSA’s Bailey Says

The U.K.’s financial watchdog will intervene to prevent
sudden surges of risky lending before they happen, the U.K.’s
top banking regulator said.

The Prudential Regulatory Authority, which will take over
from the Financial Services Authority in April as the U.K.’s
banking supervisor, will “keep a very close eye on banks,” and
require them “to have very clear lending policies,” Andrew
Bailey, head of banking and insurance supervision at the FSA,
said in a video interview on the Bank of England’s website.

“If there’s a spree of lending which looks like it’s being
done to people or companies that we doubt could repay that
lending, we’d aim to stop that before it happens,” said Bailey,
who will also lead the new regulator.